Investment Week in Review - 23 January 2017

Pitcher Partners' wrap up of issues impacting investment markets over the last week.

News in Review

US

US economic data continued to support the recent confidence shown by the Federal Reserve with a robust rise in December housing starts (+11.3%) and better than expected initial jobless claims. Furthermore the January Philadelphia Fed manufacturing index increased 3.9 points to 23.6, which was the highest level since November 2014 (34.8).

Consumer prices in the world’s largest economy registered a monthly 0.3% rise in December to take the annual CPI growth rate to 3.6%, the largest annual increase since 2014. The rise in both the headline and core numbers signal that inflation pressures may be building enough to justify several rate hikes by the US Fed.

Europe & the UK

As widely expected the European Central Bank left the policy rate unchanged at its January meeting and also offered minimal changes to its asset purchasing program. President Draghi said that recent strength in economic indicators was a positive sign but, "there are no signs yet of a convincing upward trend in underlying inflation.

UK Prime Minister Theresa May delivered her long-awaited speech on the government’s Brexit strategy. May promised a ‘clean break’ from the European Union while warning European leaders that the UK is prepared to crash out of the EU if a reasonable exit deal cannot be negotiated.

Australia

Employment data was broadly in line with expectations in December, rising 0.1% to 5.8% on the back of a rising participation rate. Full-time employment rose by 9,300 (and has now risen for three consecutive months) while part-time employment lifted 4,200.

The value of Australian home loans rose 0.6% in November pointing to further evidence of the resurgence in housing market activity that was apparent throughout 2016. The rise was mainly underpinned by a 4.9% rise in investor finance, which comes despite efforts by APRA in 2015 to subdue lending to investors and foreign buyers

China

Gross Domestic Product grew 6.8% year-on-year in the fourth quarter of 2016, slightly beating expectations and signalling that growth is stabilising in the world’s second largest economy. The growth rate remains within the range for Beijing to meet its long term goal of doubling GDP and per capita income by 2020 from 2010 levels.

Comment

Politics again dominated world headlines, with the inauguration of US President Donald Trump and British Prime Minister Teresa May delivering a speech opting for a clean ‘Brexit’. Both leaders have thus far adopted hard-lined rhetoric and both are yet to face the realities of implementing their policies.

Teresa May hopes for the “freest possible” trade deal with the EU while having total control of UK borders, an unpopular notion with European leaders. In addition to his own protectionist policies, Trump wishes to increase fiscal stimulus by spending in areas such as infrastructure, but may face funding difficulties with US government debt levels at record highs.

If 2016 was the year where leaders were told what the people want, 2017 looks like the year that tells the people what leaders can actually do.

The Week Ahead

US: Advance Goods Trade Balance (DEC), Durable Goods Orders (DEC)

Australia: Consumer Prices Index (YoY) (4Q)

China: Industrial Profits (YoY) (DEC)

Europe: Euro-Zone Consumer Confidence (JAN)

UK: Gross Domestic Product (YoY) (4Q A)

Company News

NAB and ANZ hiked rates for both owner-occupier loans and loans for property investors due to elevated funding costs. These changes are only relevant to new fixed loans, not existing borrowers.

BHP Billiton and Vale have signed a preliminary deal to negotiate a settlement of the $US47.5 billion civil claim brought against the companies in relation to November 2015’s deadly dam collapse which killed 19 people and destroyed villages.

Sydney Airport reported strong international traffic growth continued for the month of December 2016, while domestic demand growth moderated. 2016 was the fastest growth rate in 12 years and strongest total passenger growth for six years.

South32 reported an overall steady result for the December quarter, with disappointing production from Cannington and South African coal, offsetting better-than-expected production from SA Manganese and Illawarra coal. Despite the mixed performance, S32 did not make any changes to its FY17 guidance, with the company confident it can catch up in the second half.

Markets in Review

Capital Return

Weekly

CYTD

FYTD

S&P ASX 200

-1.2%

-0.2%

8.1%

DOW JONES

-0.3%

-0.3%

10.6%

S&P 500

-0.1%

1.5%

8.2%

UK FTSE100

-1.9%

0.8%

10.7%

FRENCH CAC40

-1.5%

-0.2%

14.5%

GERMAN DAX

0.0%

1.3%

20.1%

JAPANESE NIKKEI

-0.8%

0.1%

22.9%

SHANGHAI COMPOSITE INDEX

0.3%

0.6%

6.6%

ASX200 Sector Performance for the Week

ASX200 Biggest Movers for the week

$1 Australian buys you:

Security

LastPrice

AUDUSD

0.7567

AUDGBP

0.6124

AUDCNY

5.1979

AUDJPY

86.8160

AUDEUR

0.7086

AUDNZD

1.0505

DisclaimerThis material is intended for the use of the clients of Pitcher Partners Investment Services only. It is current at the date of preparation, but may be subject to change. This document does not constitute financial product advice. It is of a general nature and has been prepared without taking into account any person's objectives, financial situation or needs. Before acting on the information you should consider the appropriateness of it having regard to your objectives, financial situation or needs and seek independent advice. You should obtain and consider a Product Disclosure Statement in relation to any financial product before making any decision about acquiring the product. To the maximum extent permitted by law, Pitcher Partners Investment Services Pty Ltd and its representatives will not be liable for any loss or damage incurred by any person directly or indirectly for any use or reliance on this document.

Pitcher Partners is an independent member of Baker Tilly International. Baker Tilly International Limited is an English company. Baker Tilly International provides no professional services to clients. Each member firm is a separate and independent legal entity and each describes itself as such. Pitcher Partners is not Baker Tilly International’s agent and does not have the authority to bind Baker Tilly International or act on Baker Tilly International’s behalf. None of Baker Tilly International, Pitcher Partners, nor any of the other member firms of Baker Tilly International has any liability for each other’s acts or omissions. The name Baker Tilly and its associated logo is used under licence from Baker Tilly International Limited.